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Revisiting the effect of country size on taxation in developing countries

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  • Craigwell, Roland C
  • Thomas, Chrystal

Abstract

In developed and developing countries, taxation makes up a significant part of government‟s current total revenue. Tax efficiency is important in order to maximize revenue that can be used in the redistribution of wealth and public expenditure. Larger economies, however, experience difficulties in remaining efficient. This study, therefore, seeks to investigate the effect country size has on tax revenues for developing countries and to discuss whether the findings of Codrington (1989) in the 1980s still hold in the twenty-first century. Analytical and empirical methodologies were conducted using a total of thirty-four countries. Conflicting results were found. Analytically, size played a discriminating role with respect to utilization of the tax systems as 72.6 percent were employed by maxi-states while 59.7 percent were adopted by small economies. Micro economies were heavily reliant on international trade and transaction taxes. Empirically, population positively influenced tax-to-GDP ratios while openness was statistically insignificant.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 33470.

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Date of creation: 2010
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Handle: RePEc:pra:mprapa:33470

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Keywords: Taxation; country size; developing countries; panel data;

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